Imation Reports First Quarter 2013 Financial Results

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Imation Reports First Quarter 2013 Financial Results

OAKDALE, Minn.--(BUSINESS WIRE)-- Imation Corp. (NYS: IMN) today released financial results for the quarter ended March 31, 2013.

The Company reported Q1 2013 net revenue of $224.4 million, down 14.8 percent from Q1 2012, an operating loss of $14.7 million including special charges of $4.2 million, and a diluted loss per share from continuing operations of $0.39. Excluding special charges, Q1 2013 operating loss would have been $10.5 million and diluted loss per share from continuing operations would have been $0.31 (See Tables Five and Six for non-GAAP measures).


Imation President and Chief Executive Officer Mark Lucas commented: "Imation's strategic transformation continues to center on leveraging our roots in data storage to build a platform for long-term growth and profitability. In the first quarter, our storage and security solutions business delivered strong results, led by our recently acquired NexsanTM portfolio of products. Additionally, we made good strides in reducing our operating costs and implemented our reorganization into two business units to streamline decision making." Lucas continued, "Though we are making good progress, we are not yet where we need to be long-term and more work remains."

Business Update

The Company announced in February that a process would be run to divest both the Memorex and XtremeMac consumer electronic businesses. That process is moving forward and progress has been made in identifying interested parties. The consumer storage business under the MemorexTM and TDK Life on RecordTM brands will be retained.

Starting January 1, 2013, the Company reorganized into two new business segments: Consumer Storage and Accessories (CSA) and Tiered Storage and Security Solutions (TSS). With these two business segments, Imation is becoming a more customer-centric and nimble organization.

Imation's CSA business unit generates solid cash flows for the Company. This segment includes consumer storage media, primarily optical and flash, as well as storage and electronic accessories. With the planned consumer electronics divestitures, Imation will be able to refocus on storage at the retail level. For example, the Company recently introduced a 3.0 External Solid State Drive with ultra-quick data transfer in a portable form under the TDK Life on Record brand. The CSA business unit plans to launch several other new products in the upcoming quarters.

The TSS business unit provides strategic opportunities for revenue growth and margin expansion. TSS includes both Imation and Nexsan branded tiered and scalable storage solutions, IronKeyTM branded mobile security solutions and commercial storage media. During the quarter, gross margins in the TSS segment increased to 22 percent compared to 19.4 percent in the prior-year period.

Imation's Nexsan products have strong momentum and posted double-digit growth. The mobile security platform gained a significant win with the Japanese government by landing a contract for Imation's portable workspace PC on a StickTM product IronKey Workspace 300, which is Microsoft - Certified for Windows to Go. Additionally, Imation launched several other new IronKey flash drives. These storage and security solutions categories delivered gross margins well in excess of 40 percent. Commercial storage media declined 22.4 percent, as expected, driven by magnetic tape.

Lucas concluded, "In the first quarter, our businesses performed as we expected across all major geographies and product categories. Going forward we are continuing to work on introducing differentiated products, building gross margins, improving our cost structure and supporting our two business units. We are committed to achieving growth and profitability, and becoming a key player in data storage and security worldwide."

Detailed Q1 2013 Analysis

As a result of the planned consumer electronics divestitures, the financial results for those operations are now presented as discontinued operations. The following financial results are presented for continuing operations for the current and prior periods unless otherwise indicated.

Net revenue for Q1 2013 was $224.4 million, down 14.8 percent from Q1 2012. From a segment perspective, TSS grew 1.4 percent and CSA declined 24.9 percent. Foreign currency exchange negatively impacted total Q1 2013 revenues by 2.5 percent.

Gross margin for Q1 2013 was 18.8 percent, down from 20.4 percent in Q1 2012. Gross margin in Q1 2013 was 19.7 percent excluding inventory write offs of $2.1 million, which were part of the Company's restructuring program, compared to 20.4 percent on the same basis in 2012. TSS gross margin for Q1 2013 was 22.0 percent up from 19.4 percent in Q1 2012. CSA gross margin was 17.7 percent down from 21.0 percent in Q1 2012 (See Table Five for non-GAAP measures).

Selling, general and administrative (SG&A) expenses in Q1 2013 were $49.3 million, down $3.0 million compared with Q1 2012 expenses of $52.3 million. The reduction of 5.7 percent was driven by our cost reduction efforts and prior intangible write-offs, which reduced these costs by approximately 18 percent, partially offset by the Nexsan operating expenses added as a result of the acquisition.

Research and development (R&D) expenses in Q1 2013 were $5.4 million, down $0.2 million compared with Q1 2012 expenses of $5.6 million.

Special charges were $4.2 million in Q1 2013 compared with Q1 2012 charges of $1.3 million.

Operating loss was $14.7 million in Q1 2013 compared with an operating loss of $5.6 million in Q1 2012. Excluding the impact of special charges described above, adjusted operating loss would have been $10.5 million in Q1 2013 compared with adjusted operating loss on the same basis of $4.3 million in Q1 2012 (See Tables Five and Six for non-GAAP measures).

Income tax provision was $0.4 million in Q1 2013 compared with income tax provision of $1.3 million in Q1 2012. The Company maintains a valuation allowance related to its U.S. deferred tax assets and, therefore, no tax provision or benefit was recorded related to its U.S. results in either period.

Discontinued operations was an after tax loss of $5.5 million in Q1 2013 compared with a $3.0 million loss in Q1 2012. Discontinued operations represent the direct results of the XtremeMac and Memorex consumer electronics businesses and included $1.1 million of restructuring charges in Q1 2013.

Loss per diluted share from continuing operations was $0.39 in Q1 2013 compared with $0.25 in Q1 2012. Excluding the impact of special charges described above, adjusted loss per diluted share would have been $0.31 in Q1 2013 compared with $0.21 in Q1 2012 (See Table Five for non-GAAP measures).

Cash and cash equivalents balance was $98.2 million as of March 31, 2013, down $10.5 million during the quarter, driven primarily by anticipated changes in working capital and payments for restructuring.

Webcast and Replay Information

A teleconference is scheduled for 9:00 AM Central Time today, May 1, 2013, and will be available on the Internet on a listen-only basis at www.ir.Imation.com or www.streetevents.com. The Company's quarterly financial results will be discussed.

A taped replay of the teleconference will be available beginning at 1:30 PM Central Time on May 1, 2013, until 11:30 PM Central Time on May 10, 2013, by dialing 855-859-2056 (conference ID 26505626). All remarks made during the teleconference will be current at the time of the teleconference and the replay will not be updated to reflect any subsequent developments.

Description of Tables

Table One - Consolidated Statements of Operations

Table Two - Consolidated Balance Sheets

Table Three - Supplemental Segment and Product Information

Table Four - Additional Information

Table Five - Non-GAAP Financial Measures

Table Six - Non-GAAP Financial Measures

Table Seven - 2012 Financial Information - Discontinued Operations

Table Eight - 2012 Financial Information - Revised Segments

Non-GAAP Financial Measures

The Non-GAAP financial measurements (adjusted gross margin, adjusted operating income (loss), adjusted earnings (loss) per diluted share) are provided to assist in understanding the impact of certain items on Imation's actual results of operations when compared with prior periods (see Tables Five and Six). Management believes this will assist investors in making an evaluation of Imation's performance against prior periods on a comparable basis by adjusting for these items. Management understands that there are material limitations on the use of Non-GAAP measures. Non-GAAP measures are not substitutes for GAAP measures for the purpose of analyzing financial performance. These Non-GAAP measures are not in accordance with, or an alternative for measures prepared in accordance with, generally accepted accounting principles and may be different from Non-GAAP measures used by other companies. In addition, these Non-GAAP measures are not based on any comprehensive set of accounting rules or principles. This information should not be construed as an alternative to the reported results, which have been determined in accordance with accounting principles generally accepted in the United States of America.

About Imation Corp.

Imation (NYS: IMN) is a global scalable storage and data security company. The Company's portfolio includes tiered storage and security offerings for business and products designed to manage audio and video information in the home. Imation reaches customers in more than 100 countries through a powerful global distribution network and well recognized brands. Additional information about Imation is available at www.imation.com.

Risk and Uncertainties

Certain information contained in this press release which does not relate to historical financial information may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause our actual results in the future to differ materially from our historical results and those presently anticipated or projected. We wish to caution investors not to place undue reliance on any such forward-looking statements. Any forward-looking statements speak only as of the date on which such statements are made, and we undertake no obligation to update such statements to reflect events or circumstances arising after such date. Risk factors include our ability to successfully implement our strategy including our global restructuring plan; our ability to grow our business in new products with profitable margins and the rate of revenue decline for certain existing products; the ability to quickly develop, source, introduce and deliver differentiated and innovative products; our potential dependence on third parties for new product introductions or technologies in order to introduce our own new products; foreign currency fluctuations; the ready availability and price of energy and key raw materials or critical components including the effects of natural disasters and our ability to pass along raw materials price increases to our customers; continuing uncertainty in global and regional economic conditions including adverse effects of austerity measures and the ongoing sovereign debt crisis in Europe; our ability to identify, value, integrate and realize the expected benefits from any acquisition which has occurred or may occur in connection with our strategy; the possibility that our goodwill and intangible assets or any goodwill or intangible assets that we acquire may become impaired; the ability of our security products to withstand cyber-attacks; the seasonality and volatility of the markets in which we operate; changes in European law or practice related to the imposition or collectability of optical levies; significant changes in discount rates and other assumptions used in the valuation of our pension plans; changes in tax laws, regulations and results of inspections by various tax authorities; our ability to successfully defend our intellectual property rights and the ability or willingness of our suppliers to provide adequate protection against third party intellectual property or product liability claims; the outcome of any pending or future litigation; ability to access financing to achieve strategic objectives and growth due to changes in the capital and credit markets; limitations in our operations that could arise from compliance with the debt covenants in our credit facility; increased compliance with changing laws and regulations potentially affecting our operating results; failure to adequately protect our information systems from cyber-attacks; our ability to meet our revenue growth, gross margin and earnings targets and the volatility of our stock price due to our results or market trends, as well as various factors set forth from time to time in our filings with the Securities and Exchange Commission.

    
Table One
 
IMATION CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except for per share amounts)
(Unaudited)
Three Months Ended
March 31
20132012
Net revenue$224.4$263.3
Cost of goods sold 182.3 209.7
Gross profit42.153.6
 
Operating expense:
Selling, general and administrative49.352.3
Research and development5.45.6

Restructuring and other

 2.1 1.3
Total56.859.2
 
Operating loss from continuing operations(14.7)(5.6)
 
Other expense (income):
Interest income-(0.1)
Interest expense0.70.9
Other, net (0.2) 1.5
Total0.52.3
 
Loss from continuing operations before income taxes(15.2)(7.9)
 
Income tax provision 0.4 1.3
 
Loss from continuing operations(15.6)(9.2)
 
Discontinued operations:

Loss from operations of discontinued businesses, net of income taxes

 (5.5) (3.0)
 

Net loss

$(21.1)$(12.2)
 
Loss per common share - basic:
Continuing operations$(0.39)$(0.25)
Discontinued operations(0.14)(0.08)
Net loss(0.52)(0.33)
 
Loss per common share - diluted:
Continuing operations$(0.39)$(0.25)
Discontinued operations(0.14)(0.08)
Net loss(0.52)(0.33)
 
Weighted average shares outstanding
Basic40.437.5
Diluted40.437.5
 

 

Table Two

  

IMATION CORP.

CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

 
March 31,December 31,
20132012
ASSETS
Current assets
Cash and cash equivalents$98.2$108.7
Accounts receivable, net176.2220.8
Inventories133.6166.0
Other current assets 92.2 61.6
 

Total current assets

500.2557.1
 
Property, plant and equipment, net55.858.9
Intangible assets, net75.881.9
Goodwill70.673.5
Other assets 22.7 22.1
 
Total assets$725.1$793.5
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable$136.5$162.7
Other current liabilities138.4158.4
Short-term debt 20.0 20.0
 
Total current liabilities294.9341.1
 
Other liabilities50.652.0
    
Total liabilities 345.5 393.1
Commitments and contingencies    
Shareholders' equity 379.6 400.4
 
Total liabilities and shareholders' equity$725.1$793.5
 

 
Table Three
 
IMATION CORP.
SUPPLEMENTAL SEGMENT AND PRODUCT INFORMATION
(Dollars in millions)
(Unaudited)
     
 
Three months endedThree months ended
March 31,March 31,
20132012% Change
Revenue% TotalRevenue% Total
Consumer Storage and Accessories
Consumer storage media$114.250.9%$152.758.0%-25.2%
Audio and accessories 7.6 3.4% 9.4 3.6%-19.1%
Total Consumer Storage and Accessories 121.8 54.3% 162.1 61.6%-24.9%
Tiered Storage and Security Solutions
Commercial storage media66.929.8%86.232.7%-22.4%
Storage and security solutions 35.7 15.9% 15.0 5.7%138.0%
Total Tiered Storage and Security Solutions 102.6 45.7% 101.2 38.4%1.4%
Total$224.4 100.0%$263.3 100.0%
 
 

Operating
Income (Loss)

OI %

Operating
Income (Loss)

OI %

Consumer Storage and Accessories$5.94.8%$16.610.2%-64.5%
Tiered Storage and Security Solutions(3.0)-2.9%(6.5)-6.4%-53.8%
Corp/Unallocated (1) (17.6)NM (15.7)NM12.1%
Total operating loss from continuing operations$(14.7)-6.6%$(5.6)-2.1%
 

Gross Margin

Gross Margin

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